The best Scandinavian Sagas speak of those who faced twists and turns, trials and tribulations, adversity and hardship on the way to heroic achievement. For the Canadian manufacturer Bombardier, their Saga began in April 2016.
Two years ago Bombardier was struggling. Despite the success of their Q-Series (De Havilland Dash-8) and Regional Jet (Canadair) product lines, their newest clean sheet design, the C-Series, was in turmoil. Production delays and rising company debt threatened to spell the end of the program.
Bombardier had designed the C-Series with the intention of filling the void between Embraer’s E-Jet family and Boeing’s 737MAX product. The base model CS100 was a clean sheet design which promised fuel savings through high-performance engines, an extended range compared to existing regional jets, and valuable short runway performance. The lengthened CS300 featured the same cockpit setup and PW1500G engines as the base model while offering additional seating and an extended range. The C-Series launch customers, Swiss International (CS100) and Air Baltic (CS300), had chosen the aircraft specifically for its versatility and fuel economy compared to competing products.
While the product had been praised and the concept commended, international sales were scarce. Apart from a couple of modest orders from Swiss International, Air Baltic, and the US Regional Republic Airways, the C-Series had struggled to generate firm orders. By April 2016, sales of the C-Series had flatlined.
Entering 2016, United Airlines seemed destined to announce a major order for the C-Series. It was well known that the major US flag carrier was in the middle of a short-haul fleet renewal project. According to experts, the airline was planning on retiring their CRJ-200’s and upgauging their short-haul routes with a mixture of CRJ-700 regional jets and 737-700s. To fill the void completely, Bombardier’s CS100 seemed like the most viable option. However, at the last moment, just as the C-Series program appeared to be gaining momentum, Boeing stepped in and gave United an offer they couldn’t refuse. The order, which consisted of 40 737-700 Next Generation aircraft with options for 25 more, initially confused experts. United had been looking for a regional jet replacement, not a mainline aircraft.
It was only when it was revealed that Boeing had heavily discounted the aircraft by 70 percent that the order made sense. It appeared that Boeing was desperate to prevent United becoming a C-Series operator; this was further verified when United deferred the order, which had grown to 65 737-700’s, for future 737MAX options. If Boeing couldn’t satisfy their customer’s needs they were going to make sure that no other company could either.
Despite experiencing major disappointment over the rejected United order, Bombardier quickly rebounded. It turned out that United wasn’t the only major carrier undergoing a fleet renewal project. Air Canada was seeking a short-haul aircraft which was capable of flying an extended range while delivering high fuel-efficiency; the CS300 seemed like the perfect aircraft which could replace their fleet of Embraer E-190 regional jets. Finally success!
In a deal which would be finalized on June 28th, 2016, Air Canada and Bombardier signed a letter of intent for the sale and purchase of 45 CS300 aircraft with an additional 30 options on February 17th, 2016. Two months later, Delta Airlines, the second largest airline in the world (at the time), announced that they had placed an order for 75 CS100 aircraft with options for 50 more. It could be argued that these two firm orders rescued the program from the brink of failure. By the time the dust had settled, the C-Series program had almost doubled its firm orders.
News of Delta’s C-Series order spread quickly. While the implications of the order could only be speculated, experts anticipated ripple effects throughout the aviation industry. In the days following the announcement, Brazilian manufacturer Embraer publically complained about the legitimacy of Bombardier’s offer. Embraer argued that Bombardier had taken major subsidies from the Quebec government to be able to offer the C-Series below their production cost. As a direct competitor to Bombardier with their re-designed ERJ program, they were afraid of losing a potential customer in a major domestic market.
By the end of May 2016, Embraer had made their position clear: Bombardier would not have won the order had it not been for the government subsidies. However, they would have to prove it. As they prepared to file a World Trade Organization (WTO) complaint, the media was licking their chops over a potential mega story; this was not the first time that Bombardier and Embraer had come to blows over price discounting. In 2001 an order for 75 Canadair Regional Jets by Air Wisconsin was overshadowed by damning allegations from the Brazil Government. They claimed that the Canadian Government, on behalf of Bombardier, had broken WTO regulations to secure the order. Unbeknownst to the WTO, the Brazilian Government had made an identical offer to Air Wisconsin preceding the offer from the Canadian Government. After AW convinced the Canadian Government to match the offer, despite the potential for WTO ruling, the Brazilian Government filed the WTO complaint. After it became known that Brazil had acted first, the WTO reprimanded both countries; however, because the outcome slightly favored Canada in the number of retaliatory rights, no further action was taken.
According to financial and aviation experts, the firm stance taken by Embraer was little more than a means of sewing doubt into the minds of the public on the viability of the C-Series. As mentioned above, for the WTO to act in favor of Embraer they would have to definitively prove that the discount was the only reason Delta accepted the offer. Given Delta’s high opinion on the C-Series, it’s unlikely that price was the only reason they chose Bombardier. Just as had been the case in 2001 with Air Wisconsin, Delta had chosen the aircraft which satisfied their demands.
After the uproar from Embraer in May, the number of articles discussing the price dumping and government subsidies started to decrease. Despite the momentum built from the 2 major orders, it remained a topsy-turvy time for Bombardier. On May 20th, the Canadian manufacturer announced that they were officially removing Republic Airways order from the books; the carrier had entered Chapter 11 Bankruptcy and their order, which was on behalf of their former subsidiary Frontier Airways, was converted into delayed options. Shortly after this setback, Bombardier regained some lost momentum with the delivery of the first CS100 to Swiss International. Officials were also on hand to celebrate the official EIS on July 15th,2016 as the CS100 debuted operations on the popular Zurich-Paris (CDG) route.
Over the next few months, the United States elected Donald Trump President and the Obamas vacated the Whitehouse. Almost a year to the day after Delta had finalized their order, Boeing formally appealed to the US Department of Commerce and the US International Trade Commission calling for a 79 percent tariff on Delta‘s imported CS100 aircraft. Experts suggested that Boeing was challenging the order because of the “dangerous” precedent which could be set by the nature of the discounted order. Despite having no comparable product and having used similar measures to win the United Airlines order in January 2016, (albeit without crossing international borders-which to be fair is a crucial component), Boeing called for direct action against Bombardier’s business practices.
In the first few months of the Trump Administration, it quickly became clear that attitudes towards international imports and American-Made products had changed dramatically. While the new administration had made its stance firm on international imports, there was a ray of light for Bombardier: Boeing would likely have to prove that they had been directly harmed by the order. In immediate response to Boeing’s trade complaint, the Canadian government released a statement saying that they were re-considering an order placed by the Harper Government for Boeing’s Super Hornet fighter jet. Speculators began to wonder if Boeing had made a crucial mistake by misjudging the scale of the battle they were getting into.
Over the summer months, there would be little change in the positions of the Canadian Government and Boeing. At the request of Boeing, the Department of Commerce agreed to delay their decision on additional tariffs to September 25th, 2017. In the weeks leading up to the Commerce Department’s verdict, British Prime Minister Theresa May spoke with President Trump about the value of the C-Series program to the United Kingdom. May was quick to note that the Quebec manufacturer employed over 4000 workers in Northern Ireland, and the import tariffs would have ripple effects throughout Bombardier’s production line. In the days leading up to the decision, Bombardier workers took to the streets in protest of the proposed tariffs. No one knew what to expect on September 25th; the decision reached by the DOC, which came out on the 26th, was stunning!